Monday 16 April 2018 by Leigh Winton Week in review

From the trading desk

Market still expects rate hikes this year following hawkish FOMC minutes, investors see recent Rackspace price weakness a buy opportunity, Cash Converters great short term investment, Asciano 2027 FRNs available, and Liberty Finance a popular switch target after 2021 bond issuance. The latest new DirectBonds include Teva and Calpine, offering exposure to the pharmaceutical and energy sectors

What’s trading

AUD

  • The Cash Converters 7.95% 2018 bond was popular as long term holders look to exit their positions prior to due refinancing of the bond. This offers a great short term investment for those happy to take on refinance risk with the bond offering an indicative yield to maturity of 6.85%pa. There is currently strong demand for the bond
  • Floating rate notes have been well sought after and difficult to source from the institutional market. However, we were able to pick up a parcel of the Asciano BBSW+2.60% 2027 bonds rated BBB- by Standard and Poor’s (S&P). These 2027 bonds offer great diversification in portfolios and were instantly snapped up by investors at a yield to worst of 4.60%pa
  • Liberty Finance has also been popular having recently issued a 5.10% 2021 fixed rate bond. The 2021 bond became available on the secondary market last week at an indicative yield to worst of 4.8%. Some investors chose to move out of the shorter dated Liberty 5.10% 2020 bond and pick up a few basis points by switching to the 2021 bond

Non AUD

  • The 2024 fixed rate senior debt from Rackspace Hosting was the standout in the USD space last week. The data services provider experienced some price weakness recently following disappointing 4Q17 results. Many clients saw this as a buying opportunity given the company’s strong fundamentals, which saw the price climb modestly last week. Supply is still available at an indicative yield of 7.97%pa
  • Two new securities were added to the DirectBonds list last week, expanding FIIG’s offerings in the energy sector. Calpine Corporation is America’s largest generator of electricity from natural gas and geothermal resources with operations in competitive power markets. Both Calpine bonds on offer are senior fixed rate bonds maturing in 2023 and 2025. Both are currently available to wholesale clients only at indicative yields of 5.46%pa and 6.49%pa, respectively

Economic wrap

Last week’s FOMC minutes were slightly hawkish, with markets still pricing in two to three further US rate hikes for 2018. Additional tightening is also expected in 2019. This week, we should get a few more clues as there are 10 regional Fed presidents due to speak.

US consumer confidence was weaker than expected at 97.8 and although headline CPI missed, the less volatile core CPI number met forecasts at 2.1%. In the US, retail sales, industrial production, capacity utilisation and the leading index are released this week.

Australia releases employment numbers on Thursday with a positive 20,000 jobs and a 5.5% unemployment rate expected, according to Bloomberg.

Other news – AUD high yield available

StockCo released an earnings update last week and reported steady earnings for 1H18. However, FIIG Research has downgraded its recommendation from Outperform to Market Perform on the 8.75% 2022 bond based on its current price. We note that the company has expressed its intention to exercise the option to redeem the notes at the first available call date in October 2019 at $103.00. However, this is  not a guarantee.

Demand for IMF Bentham continues with the security now available to retail investors. The company is involved in the funding and backing of litigation and arbitration claims, and the 2020 unrated security has a yield to maturity of circa 5%pa and a yield to worst of around 4%pa.

The spate of early redemptions continues with Capitol Health announcing they are calling its fixed rate bonds on 10 May at a price of $103.00 plus accrued interest. This follows CML’s call last week and continues to create demand for higher yield sub investment grade bonds. Again, we urge investors to discuss reinvestment options sooner rather than later with their FIIG relationship manager to avoid reinvestment risk at the call date.

Last week, FIIG added two Teva securities onto its DirectBonds service. Teva is a global pharmaceutical company headquartered in Israel. View the Factsheets for the BB rated bonds by Standard & Poor’s (S&P), with a yield circa 5.50% for the 2026 security.

FIIG also added two Calpine Corporation securities to its DirectBonds service. Calpine is America’s largest generator of electricity from natural gas and geothermal resources. The bonds are rated single B by (S&P), with yield of circa 6.50%pa for the 2025 bond. View the Factsheets.


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